Belfast Telegraph

Friday 28 November 2014

BoE rejects political bias claim

The governor of the Bank of England has been forced to defend his stance on the Government's spending cuts after one of his senior colleagues raised concerns over impartiality.

Mervyn King was cornered at a Treasury Select Committee hearing when it emerged policymaker Adam Posen had challenged fellow members of the Monetary Policy Committee (MPC) for being "excessively political".

Mr King said the views, expressed in the MPC's quarterly inflation report in May, were shared by the majority of the committee and added he rarely discussed fiscal policy.

Asked to comment on reports earlier this month that Mr King had overstepped a line by throwing his support behind Chancellor George Osborne's deficit-busting plans, Mr Posen said: "There was a difference of opinion in our May meeting over a particular paragraph in the report talking about the need for a particular speed with which to deal with the fiscal policy.

"A number of people at the committee - more than just me and fewer than a majority - were concerned that statement could be seen as excessively political in the context of the election."

In his report to the Treasury Select Committee, MPC member Andrew Sentance, who spoke to the Belfast Telegraph during a visit to Northern Ireland on Wednesday, said that the rate of inflation in the UK - currently at 3.2% - could shoot past 4% in the coming months.

Mr Sentance issued a stark warning concerning the forthcoming rise in VAT to 20%, saying higher commodity prices will push up inflation. And he was less confident than the rest of the MPC committee that inflation would fall below the target of 2%.

The rate-setter told the Telegraph he wants to see a gradual rise in interest rates - which are currently at an historic low of 0.5%.

He said: "I regard this as the start of a necessary gradual adjustment in monetary policy to keep the UK economy on a low inflation course as it recovers from recession. Delaying this process risks a more abrupt policy move later on, which could deliver an adverse shock to business and consumer confidence."

Mr King told the Treasury Select committee that he expected inflation to stay elevated for another year or so. But he warned if the MPC took strong action to offset movements in inflation it would risk "undesirable volatility" in economic growth.

Mr King said the MPC was ready to adjust policy - in either direction - should the outlook for inflation demand it.

He added: "The range of views among the MPC about which of these risks will come to dominate is wider than usual and that explains why different members have drawn different policy conclusions in recent months."

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